Step-up in basis: the tax break nobody tells grieving families about

Question

Accepted Answer

Here is genuinely good tax news. When you inherit a home, your cost basis for capital-gains purposes 'steps up' to its fair market value at the date of death — not what your parents paid in 1982.

Example: parents paid $95,000; home is worth $1.6M at death; heirs sell six months later for $1.65M. Taxable gain isn't $1.5M+ — it's roughly $50,000 (minus selling costs), often little or nothing after expenses. For a married surviving spouse in California (a community-property state), both halves generally step up.

Two practical consequences: get a date-of-death appraisal (or a well-documented professional valuation) — it's the evidence of your new basis; and understand that waiting years to sell means future appreciation is taxable gain, measured from the date-of-death value.

This is also why 'we should have sold before she passed' is almost always backwards, and why the sell-vs-keep decision should be made on its own merits — the capital-gains monster most families fear usually isn't there.